PLANNING FOR WEALTH AND SECURITY
By Attorneys Jennifer and Jeff Hawkins

A Quick Overview Of Mineral Law- Part 2 Oil And Gas

This article concludes a two-part series explaining Indiana Mineral Law.  Last month’s article focused on the laws and economic conditions surrounding the development of coal and other related mineral interests.  This month’s segment focuses on oil and natural gas. 

Natural gas was produced underground by the decay of plant and animal material over thousands of years.  This article refers to the natural gas that commonly lies within or near crude oil in underground rock formations as “conventional gas” and coal bed methane gas as “CBM.” 

Oil and conventional gas squish around among the rock formations. The substances are either pressurized by the natural pressures existing in the ground or they may be pressurized artificially through the injection of carbon dioxide gas or salt water.  Either way, an injection well can be made in one location and an extraction well can be made in another location so that the injection well “pushes” the oil or gas toward the extraction well so that it may be pumped out of the ground and stored in tanks.  After the oil or gas is extracted it is sent to a processing facility to be cleaned and refined for the end user. 

CBM is trapped within the coal seams and does not move around like conventional gas.  In order to extract CBM from the ground the coal seam must first be crumbled up to allow the gas molecules to escape from their imprisonment in the coal.  Throughout the history of underground coal mining CBM has been a dangerously explosive substance that has resulted in the deaths of many underground miners.  The CBM extraction process capitalizes on that characteristic through a process called “fracturing.”  The fracturing process involves drilling down to the coal seam and forcing water or gas under high pressure into the coal seams to break up the coal and release the gas. Once the coal is fractured, the gas molecules collect in the small pockets created by the fracturing process and a similar extraction process can be used to force out the CBM as is used to force out conventional gas. 

Landowners may have rights to be paid for energy development, but their rights depend on what their predecessor landowners did with the land. If someone sold the coal, oil, or gas rights previously, the landowner’s rights will be more limited. Once a developer purchases oil and gas rights, the gas lease usually allows the producer to build roads, install electric power lines, install oil and gas pipelines, and install oil and gas storage tanks on the premises.  Although most producers try to be responsible about their use of leased facilities, such leases can entitle producers to carve up land like a checkerboard and destroy the productive usefulness of the surface for the surface owner.

Oil and gas leases deal with many topics that are subject to negotiation. Effective negotiation can mean the difference between a profitable and a miserable experience for the landowner.  

© 2009 by HAWKINS LAW PC, Estate, Trust & Business Attorneys. All rights reserved. Published with permission.